Stuart Kaiser and Maria Grant said Tiffany's preannounced holiday sales data, and high expectations that the retailer will issue bullish guidance, limits the stock's near-term chances to advance.

Shares have risen 16% in the past month, and are up 149% in the past 12 months, reflecting widespread enthusiasm for the stock.

With the stock at about $47, the strategists like selling Tiffany's May $50 calls, which retains a 7% upside and also benefits if implied volatility declines after earnings are reported.

"Valuation looks full at current stock levels with Tiffany trading around 20 times 2010 estimated earnings per share, at the upper end of its historical range of 17 to 20 times earnings. Our analyst is below consensus for the fourth quarter, and the full year 2010, with downside to her price target," Kaiser and Grant wrote in a Wednesday trading strategy note.

Indeed, estimates reveal expectations that Tiffany could report earnings ranging from $1.09 per share to $1.18. The median consensus estimate is $1.13.

Adrianne Shapira, the Goldman analyst who follows Tiffany, has assigned the stock a Neutral investment rating, a designation that stops just short of being overtly negative.

Goldman's stock thesis, which informs the recommendation to sell calls against Tiffany, essentially boils down to this: How much better can the news get for Tiffany?

"Management has already announced November and December sales of +8% worldwide and +12% in the U.S., leaving January guidance as the only unknown. Tiffany does not typically discount post-holidays, lowering the probability of surprising January sales/margins," Kaiser and Grant advised clients in their note.

If Tiffany positively surprises investors, and issues blowout earnings guidance, investors who sell calls risk being forced to sell the stock at $50 should the stock rally on earnings. If you can live with these risks and rewards, this trade is worth considering.